By David Milliken
LONDON (Reuters) -British retail sales grew faster than expected in June despite continued high inflation, thanks to unusually hot weather and a rebound in food sales after King Charles' coronation disrupted spending in May, official figures showed on Friday.
While inflation at nearly 8% - the highest of any large economy - remains a challenge for many households, some economists say a fall in energy prices from July 1 will give consumers more disposable income.
Sales volumes in June were 0.7% higher than in May, the Office for National Statistics (ONS) said, a bigger increase than the 0.2% forecast by economists in a Reuters poll.
Compared with a year earlier, sales were 1.0% lower, beating forecasts for a 1.5% decline.
As well as the bounce-back in food sales, department stores and furniture shops also had a strong month, the ONS said.
During May, households spent less at food retailers, possibly because they were eating out more at restaurants due to an extra public holiday to mark King Charles' coronation.
Last month was the hottest June in Britain in modern records, boosting supermarkets and department stores. Only clothing and footwear stores saw lower sales last month.
Sterling jumped by around a quarter of a cent against the U.S. dollar after the data before giving up its gains.
SPENDING UP, CONSUMPTION STAGNANT
The longer term picture is less rosy, however, as shoppers are getting much less for their money than three years ago and overall consumption has stagnated along with the economy.
Market research firm GfK reported that consumer confidence fell in July for the first time since January.
While the amount of money spent at retailers last month was 17.9% higher than just before the COVID-19 pandemic, the volume of goods bought was 0.2% lower, the ONS said.
Food inflation has been especially high, with prices in June 17.4% above those a year earlier, not much below March's 45-year high of 19.2%, according to ONS data published on Wednesday.
Britain's competition regulator said on Thursday that high prices were not due to weak competition between supermarkets, after allegations of profiteering.
Friday's data showed the first monthly fall in retail prices, excluding fuel, since January 2022, just before Russia's invasion of Ukraine intensified Britain's inflation pressures.
Some economists now see signs of a turnaround ahead for retail sales, despite the impact of higher Bank of England interest rates. The BoE raised interest rates to 5% last month and is expected to increase them again to 5.25% in August.
"Overall, we expect retail sales volumes to moderately tick up over the rest of the year, but a greater rebound will have to wait until the economy improves more broadly, which probably won't be until the second half of 2024," said Thomas Pugh, an economist at accountants RSM UK.
Other analysts are less positive.
"With the full drag on activity from higher interest rates yet to be felt, we still think the economy will tip into recession in the second half of this year," said Ashley Webb at Capital Economics.